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Getting a hard money loan from a commercial hard money lender is a popular way to receive funds fast when the deal is considered risky, when you have bad credit, or you are on a tight schedule. Hard money, also called “hard cash”, is a loan used to purchase a property when traditional financing doesn’t work. For many commercial real estate investors, a commercial hard money lender is a go-to alternative option to conventional financial institutions like banks. Hard money lenders help real estate investors receive quick hard money loans that don’t require a complicated approval process.
The loan is usually short-term, but long-term options are also available, depending on your needs. That said, you need to be sure you’re choosing the right lender for you, which is where PropertyCashin comes in. By using PropertyCashin national directory, you can find the top 10 commercial hard money lenders in your area. Select from the best hard money lending companies on our list and receive quick financing for rentals, “buy and hold” or “fix and flip” properties, foreclosures, rural land, and other attractive investment opportunities.
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Frequently Asked Questions
Who are commercial hard money lenders?
Commercial hard money lenders are lenders who operate outside of the traditional real estate financing industry and provide fast hard money loans for commercial property. “Hard money” is so called because it’s hard to get. Such a loan is used for risky deals that a traditional lender, such as a bank, will not finance, when there is no time to wait for a loan approval, or when the borrower has a bad credit score.
Loans provided by commercial hard money lending companies generally have a short approval time, are taken for a short term, and have higher interest rates than conventional loans. They can be paid off over the time specified in the contract or refinanced with a conventional loan in case of a long-term investment, such as buying a rental property or agricultural land.
Who are private money lenders and how are they different from hard money lenders?
Although “private money” and “hard money” are terms used interchangeably by hard money lending companies advertising their loans, there are notable differences between the two. The real meaning of “private money” is a loan taken from a person such as a business partner, a friend, a relative or another individual or a group of people who have a personal relationship with you.
“Hard money” is a term for cash borrowed from lending companies that offer hard money loans. The loans are asset-based, have strict terms, and are available to any investor who can prove the viability of their project to the lender. However, these terms are often used as synonyms by lenders and investors.
How do commercial hard money lenders work?
A commercial hard money loan can be taken for different types of investing projects: fix-and-flip, buy and hold, as a bridge loan, for commercial construction, land acquisition, and others.
Hard money lenders offer loans based on the investor’s equity in the collateral property. Commercial hard money lenders make profit through collecting interest and other fees from borrowers.
The interest rates can vary based on the amount of equity and depending on how risky the project is. Normally, they range from 10% to 15%. There are also “points”—fees that cover the lender’s administrative expenses for loan origination.
Normally, they range from 2% to 10%. Usually, hard money loans also require a down payment the amount of which depends on how risky the project is. However, in some cases you may be allowed not to put anything down, especially if you have a good track record with the same lender.
What’s the difference between hard money and a commercial mortgage loan?
Hard money is an asset-based loan. For a hard money lender it’s most important how much equity the investor has in the property, while for a conventional commercial mortgage the borrower’s credit score is the most important factor to qualify.
Hard money lenders still check the borrower’s credit history, but it’s a secondary qualifier. Hard money loans have higher interest rates and feature other fees, unlike more affordable traditional financing. However, hard money loans have a shorter approval process than a regular commercial mortgage loan.
Normally, hard money is used as a bridge loan to finance a hot investing opportunity that can’t wait through a conventional mortgage approval process, and then either refinance it with a long-term conventional mortgage or resell for a profit. Another reason to use a hard money loan is a risky deal you can’t get traditional financing for: a fix and flip project or a property with another risk factor.
How to find hard money lenders for commercial real estate?
There are a few ways to find a good hard money lender. First of all, you can ask professionals you know personally for recommendations. Also, you can use online search to see the options in your city.
Not all lenders offering private money for commercial real estate investors are trustworthy, so don’t forget to read previous reviews about the hard money lenders you are considering.
However, there is one easiest and most reliable option when looking for a reputable hard money lender—to use PropertyCashin directory. It makes finding the right choice for you simple by providing a list of legitimate private money lenders in your location.
Our directory only includes top-rated, reputable commercial hard money lenders, so you can simply select your city and choose one or a few companies that could help you with your real estate investment project.
What do hard money lenders look for in a borrower?
Generally, borrowers who are organized and motivated to repay have better odds of receiving private money. Good credit is not a common requirement for hard money lenders, but they require the investor to have substantial capital in the given project. Lenders also ask for reasoning behind why a project is likely to be profitable.
Have a detailed game plan already in place and be able to provide numbers and all necessary documents when looking for a hard money lender. The proof of cash in your bank to repay the loan if the project doesn’t work out is also an advantage for you when trying to get approved. As well as a down payment the amount of which is appropriate for the measure of risk of your project.
Does a commercial hard money lender require a credit check?
Hard money lenders are more forgiving when it comes to bad credit than institutional lenders. There are also “no credit check” hard money lenders. However, be careful when considering one. A professional lender usually wants to look at your history to have as much data as possible to estimate the unlikelihood of losing their own money.
Because hard money loans are asset-based, bad credit, outstanding tax liens, or foreclosures on your credit don’t necessarily mean that you will be denied. So long as you have sufficient equity in the project and can prove its viability, the lender can go ahead with issuing the loan.
What are the commercial hard money loan rates on average?
Hard money loan rates differ depending on the state. In states with a higher number of lenders, the rates are lower, because of the higher competition. With that said, a typical loan term of 3-6 months can be expected to have an interest rate between 7% and 15%.
Additionally, the points (origination fees) for a loan of the same term can be expected to range between 2% and 10% of the loan amount. Short term loans and riskier investments typically come with higher points and interest rates.
Do hard money lenders always require a down payment?
Generally yes, but not all hard money lenders require a down payment for every single loan. In instances where a borrower has bad credit or the project at hand is seen as high risk, the investor may opt to require the borrower to make a higher down payment in order to decrease their risk of losing money if the investment doesn’t pan out favorably.
However, the likelihood of getting a “no money down” loan may be increased if the borrower has a trustworthy track record as an investor or if the borrower can persuade the lender that the project is low-risk enough to skip the down payment.
Is a commercial hard money loan the same as a bridge loan?
In most cases yes, but not every bridge loan is a hard money loan. Bridge loans are a form of financing that is taken for a short term to complete a transaction for which the buyer lacks cash, a quick rehab and resale project, or similar. Just like a hard money loan, it’s normally refinanced by a conventional mortgage or paid out in cash in a lump sum.
It’s a temporary financing option taken for a couple of months maximum. A bridge loan can be either a hard money loan or come from a bank or line of credit. A hard money loan can be taken for longer terms: normally for up to a year, and even be extended for another one or two years in some cases.
Who regulates hard money lenders and do they need a license to operate legally?
Hard money lenders are regulated on the state level. The requirements vary. In some states it’s required that at least one member of the lending company possesses a real estate broker’s license. Generally, a hard money lender is expected to have a mortgage broker’s license too, which is still not the same for all states.
For example, Pennsylvania does not legally require to hold a license for lending on commercial properties, unlike for lending on residential ones. In instances where transactions take place across state lines, the lender is held responsible in accordance with the laws of the state they work in.
Are you a reputable commercial hard money lender?
If you’re an established and reputable lending company that provides private and hard money loans to finance commercial real estate projects, apply to get listed in our directory.